Recognizing Accounting Method Changes & Effects

Author: Jennifer Kowal

Accounting methods are not just the cash method and the accrual method. The IRS defines a method of accounting as the treatment of any material item that does not permanently affect lifetime income. Under this broad definition, many changes in tax treatment are classified as changes in accounting method, and require following procedures for obtaining permission for such a change. Additionally, the IRS has extensive ability to make "adjustments" to income under I.R.C. section 481 when a taxpayer has used an incorrect accounting method, not subject to any statute of limitation.

This on-demand course will explain, with realistic example cases, what qualifies as a change in accounting method, the procedures that taxpayers must follow to obtain permission for a change in accounting method, and the rules relating to adjustments under IRC Section 481.

Publication Date: May 2018

Designed For
Tax practitioners at all levels who provide advice and return preparation on tax timing issues or the proper year of inclusion of items of income and expenses.

Topics Covered

• Definition of accounting method
• Rules for when changes in accounting method are permitted
• How to make Section 481 adjustments to account for accounting method changes
• Change in accounting method vs. error correction
• Distinguish between an error correction allowing tax return amendment vs. change in accounting method
• Definition of change in accounting method and mechanics of implementing an  accounting method change

Learning Objectives

• Distinguish between an error correction allowing tax return amendment vs. change in accounting method
• Identify the definition of change in accounting method and mechanics of implementing an accounting method change
• Describe accounting method
• Recognize rules for when changes in accounting method are permitted
• Identify how to make section 481 adjustments to account for accounting method changes
• Differentiate between change in accounting method vs. error correction
• Differentiate between an error correction allowing tax return amendment vs. change in  accounting method
• Identify the definition of change in accounting method and mechanics of implementing an  accounting method change
• Identify tests with respect to selection of an accounting method
• Recognize which form is required to file in order for a taxpayer to obtain consent regarding a change in accounting method
• Differentiate statements with respect to obtaining permission from the Commissions for an accounting method change
• Identify the type of of accounting method changes does the IRS generally not provide any audit protection
• Describe proper statements with respect to a Section 481 adjustment
• Recognize correct statements regarding error corrections, changes in accounting methods, and the cut-off method

Level
Intermediate

Instructional Method
Self-Study

NASBA Field of Study
Taxes (2 hours)

Program Prerequisites
A basic understanding of accounting methods, including cash and accrual.

Advance Preparation
None